ECB cuts interest rates to all-time low

The European Central Bank, which cut its key interest rates to new all-time lows on Thursday, did not discuss any further "non-standard" measures to beat the crisis, ECB President Mario Draghi said.

05.07.2012

(AFP) The European Central Bank, which cut its key interest rates to new all-time lows on Thursday, did not discuss any further "non-standard" measures to beat the crisis, ECB President Mario Draghi said.

"We didn't discuss any other non-standard measures," Draghi told a news conference here, referring to an artillery of special emergency measures at its disposal, such as massive injections of liquidity into the banking system, or a programme of buying up the sovereign bonds of debt-wracked countries.

A hotly contested programme of indirectly buying up the bonds of debt-mired countries -- known as the Securities Markets Programme (SMP) -- has lain dormant for 16 weeks now.

The ECB also appears reluctant to embark on further massive injections of liquidity while the effects of two previous ones in December and February amounting to more than 1.0 trillion euros have still to make themselves fully felt.

The size and complexity of those two operations, known as long-term refinancing operations or LTROs, were such that it was not possible to assess exactly what effects they have had, Draghi said.

The aim of the LTROs was to avert a looming credit crunch, because the ECB hoped banks would lend the cheap funds to businesses and households and keep credit flowing in the debt-wracked eurozone economy.

However, the cash does not appear to be trickling through into the real economy, recent data suggest, with lending by eurozone banks to the private sector actually contracting in May.

Draghi attributed that to low demand for credit, rather than the restrictive lending policies of banks.

"The credit is led predominantly by demand. When the demand is weak you won't expect credit growth," he argued, adding that it was not part of the ECB's remit to instruct banks what to do with the money.

Draghi denied the ECB is running out of possible policy options to tackle the crisis.

"We still have our artillery ready. We still have all our tools to pursue our objectives within our mandate," he said, while refusing to elaborate further on what other possible non-standard measures the ECB could resort to.

The decision to cut rates by a quarter of a percentage pont to an all-time low of 0.75 percent was taken unanimously by the ECB's 23-member governing council, Draghi said.

Asked whether the eurozone's current bailout funds, the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM), had sufficient funds to a collapse of any more eurozone states, Draghi said they would be "adequate".

"How big is enough, really?" he asked.

"We know what we have. We have to make it do. Frankly, right now the ESM and EFSF are enough, adequate to cope with the risks, contingencies that we can envisage now," Draghi said.